Question

On January 2, 2021, Sanborn Tobacco Inc. bought 10% of Jackson Industry’s capital stock for $93 million. Jackson Industry’s net income for the year ended December 31, 2021, was $123 million. The fair value of the shares held by Sanborn was $104 million at December 31, 2021. During 2021, Jackson declared a dividend of $63 million. 2. Assume that Sanborn sold the stock on January 2, 2022 for $116 million. Prepare the journal entries Sanborn would use to record

Answer 1

Answer:

Sanborn Tobacco Inc.

Journal Entries:

1. January 2, 2021,

Debit Investment in Jackson Industry $93 million

Credit Cash $93 million

To record the purchase of 10% of Jackson Industry’s capital stock.

December 31, 2021,

Debit Investment in Jackson Industry $12.3 million

Credit Share from Net Income $12.3 million

To record the share from the net income of Jackson Industry.

December 31, 2021

Debit Investment in Jackson Industry $11 million

Credit Unrealized Gain from Investment $11 million

To record the unrealized gain on fair value of the investment.

2021,

Debit Dividends Receivable $6.3 million

Credit Investment in Jackson Industry $6.3 million

To record the dividends receivable and reverse the part of the income already recorded.

2. January 2, 2022

Debit Cash $116 million

Credit Investment in Jackson Industry $110 million

Credit Realized Gain from Investment $6

To record the gain from the sale of the investment.

Explanation:

a) Data and Analysis:

Transaction Date

January 2, 2021, Investment in Jackson Industry $93 million Cash $93 million 10% of Jackson Industry’s capital stock for .

December 31, 2021, Investment in Jackson Industry $12.3 million Share from Net Income $12.3 million

December 31, 2021 Investment in Jackson Industry $11 million Unrealized Gain from Investment $11 million

During 2021, Dividends Receivable $6.3 million Investment in Jackson Industry $6.3 million

2. January 2, 2022 Cash $116 million Investment in Jackson Industry $110 million Realized Gain from Investment $6